Wednesday, June 16, 2010

Quotes of the day

We could tie the payoffs to executives not just to the value of common shares but to the long-term value of a broader basket of securities. So, for example, instead of giving executives 3 percent of the value of the firm’s common shares, you could give them, say, 1 percent of the aggregate value of the common shares, preferred shares and bonds.--Lucian Bebchuk

Bebchuk's proposal is an improvement over the current system, but would most likely incent executives to inflate their balance sheets, which would not be usually in the interest of the shareholders or bond holders. Can't completely duck the principal-agent problem.--Cav

Faces of brown-eyed men were rated more dominant than those of blue-eyed men, even when their eyes weren't brown.--JR Minkel

While Obama enumerated the steps his administration has taken to clean up the oil and prevent it from fouling the Gulf coast, he was virtually silent about the complaints state and local officials have consistently voiced—that the cleanup effort is slow, inefficient, and confused by multiple agencies whose activities are inadequately coordinated. He failed to acknowledge these difficulties and to offer specific remedies for them. Indeed, the speech was marked—and marred—by its paucity of compelling specifics.--William Galston

Consider the purely hypothetical case of a massive oil spill in the Gulf of Mexico. The traditional libertarian would argue that regulation is unnecessary because the tort system will hold the driller liable for any damage. But what if the leak is so vast that the driller doesn’t have the resources to pay? The libertarian would respond that the driller should have been forced to post a bond or pay for sufficient insurance to cover any conceivable spill. Perhaps, but then the government needs to regulate the insurance contract and the resources of the insurer. Even more problematically, the libertarian’s solution requires us to place great trust in part of the public sector: the court system. At times, judges have been bribed; any courtroom can be influenced by the best lawyers that money can buy. Andrei Shleifer and I have argued that the early regulations were appealing precisely because of a sense that the courts couldn’t be counted upon to protect private property.--Edward Glaeser

The President’s War on Fossil Fuels will reinvigorate an intense policy debate on the future of energy and environmental policy in America. He may be successful in bending the Congress to his will, as he did with health care. He may fail. I prefer another path that is simpler, faster, more unifying, and more targeted at the problem that is in the forefront of our consciousness this summer. I think it would be good for America to unite and say, “We worked together to prevent that problem in the Gulf from happening again.” It is easy to do so, and I wish the President would choose that path instead.--Keith Hennessey

My view of the bailouts is that they are primarily to save French and German banks. All the talk about "saving the Euro" is a smokescreen. I find it ironic to have an EU official warning about the collapse of democracy. The eurocracy is a very undemocratic organization, chronically in conflict with popular opinion. The bailouts are unpopular, and quite properly so. Any official who claims that that the bailouts should be undertaken in the name of democracy is a poseur.--Arnold Kling

... the market is now more worried about a Spanish government default than a default from either Banco Santander or a major telecom company.--Tyler Cowen

On the one hand, colleges generally protect students who abuse alcohol from being arrested or otherwise punished for vandalism and violence that results. In that sense, college students are treated as children not responsible for their actions. On the other hand, colleges do not impose curfews or consequences for students who abuse alcohol. In that sense, college students are treated as adults entitled to freedom from supervision. As to health insurance, you know that my solution is real health insurance, not prepaid health plans. With real insurance, claims would only be made by people in the top 5 percent of health care expenses. As a result, twenty-somethings would face low premiums and most would be able to afford their own health insurance.--Arnold Kling

Human cooperation is powerfully productive. Still, in this example, simply collecting all the pieces of a jigsaw puzzle is not by itself a very valuable achievement. The puzzle must eventually be put together properly to justify the effort spent on finding all the scattered pieces. Think of each jigsaw-puzzle piece as a unit of information that is potentially useful for making the economy work successfully. One piece might be information that deposits of iron ore exist in a certain location in Australia. Another piece might be information about which mining engineers are especially skilled at designing an operation for extracting this ore from the ground. A third piece is information about how best to transport the ore to a smelting plant. A fourth piece is information on how to make a crucial part for the engine of the truck that will transport the iron ore. A fifth piece is how to design the roads on which that truck will be driven. Clearly, the number of pieces of information that must be found and used for iron ore to become, say, a steel girder in a skyscraper is mind-bogglingly immense. It is a number far larger than the mere 1 billion pieces of the jigsaw puzzle in my example. It's beyond foolish to expect any one person (or small group of persons) to find all these pieces of information necessary for the production of steel girders (and steel automobile bodies, steel sheeting for ocean-going tankers, stainless-steel dental tools ... the list is long). Not only is the mere finding of each piece of information too difficult to entrust to a small group of persons; so, too, is the task of putting these pieces together in a way that yields useful final products.--Don Boudreaux

Fast-forward several centuries, and Henry the Lion’s would-be heir is Paul Romer, a gentle economist at Stanford University. Elegant, bespectacled, geekishly curious in a boyish way, Romer is not the kind of person you might picture armed with a two-handed flanged mace, cutting down Slavic marauders. But he is bent on cutting down an adversary almost as resistant: the conventional approach to development in poor countries. Rather than betting that aid dollars can beat poverty, Romer is peddling a radical vision: that dysfunctional nations can kick-start their own development by creating new cities with new rules—Lübeck-style centers of progress that Romer calls “charter cities.” By building urban oases of technocratic sanity, struggling nations could attract investment and jobs; private capital would flood in and foreign aid would not be needed. And since Henry the Lion is not on hand to establish these new cities, Romer looks to the chief source of legitimate coercion that exists today—the governments that preside over the world’s more successful countries. To launch new charter cities, he says, poor countries should lease chunks of territory to enlightened foreign powers, which would take charge as though presiding over some imperial protectorate. Romer’s prescription is not merely neo-medieval, in other words. It is also neo-colonial.--Sebastian Mallaby

In a sense, Britain inadvertently, through its actions in Hong Kong, did more to reduce world poverty than all the aid programs that we’ve undertaken in the last century.--Paul Romer

Modern societies deny men and women the experience of solidarity, which football [soccer] provides to the point of collective delirium. Most car mechanics and shop assistants feel shut out by high culture; but once a week they bear witness to displays of sublime artistry by men for whom the word genius is sometimes no mere hype. Like a jazz band or drama company, football blends dazzling individual talent with selfless teamwork, thus solving a problem over which sociologists have long agonised. Co-operation and competition are cunningly balanced. Blind loyalty and internecine rivalry gratify some of our most powerful evolutionary instincts. The game also mixes glamour with ordinariness in subtle proportion: players are hero-worshipped, but one reason you revere them is because they are alter egos, who could easily be you. Only God combines intimacy and otherness like this ... The sport is a matter of spectacle but, unlike trooping the colour, one that also invites the intense participation of its onlookers. Men and women whose jobs make no intellectual demands can display astonishing erudition when recalling the game's history or dissecting individual skills. Learned disputes worthy of the ancient Greek forum fill the stands and pubs. Like Bertolt Brecht's theatre, the game turns ordinary people into experts. This vivid sense of tradition contrasts with the historical amnesia of postmodern culture, for which everything that happened up to 10 minutes ago is to be junked as antique. There is even a judicious spot of gender-bending, as players combine the power of a wrestler with the grace of a ballet dancer. Football offers its followers beauty, drama, conflict, liturgy, carnival and the odd spot of tragedy, not to mention a chance to travel to Africa and back while permanently legless. Like some austere religious faith, the game determines what you wear, whom you associate with, what anthems you sing and what shrine of transcendent truth you worship at. Along with television, it is the supreme solution to that age-old dilemma of our political masters: what should we do with them when they're not working?--Terry Eagleton